How things have changed for Sydney’s first home buyers

First home buyers have been a recurring challenge in Australian politics.

They were singled out for assistance in Paul Keating’s first budget in 1983 as the government tried to revive the economy after recession.

In 2003 Peter Costello ordered a high-profile inquiry into first home ownership when their numbers plummeted amid surging property prices.

This week Treasurer Joe Hockey got into political strife for suggesting first home aspirants merely needed to find “a good job that pays good money” if they wanted to get into the super-hot housing market.

But a lot has changed for Sydney’s first home buyers since Paul Keating was Treasurer.

Back in the mid-1980s the typical first-timer was younger and more likely to have children. A bigger proportion relied on a single income, normally earned by a male breadwinner. In the mid-1980s around half of women aged 25 to 45 were in the workforce, now the proportion is about 75 per cent.

First home buyers in the 1980s had to deal with a much more rigid mortgage market. State-owned banks did much of the lending and the range of loan products was limited compared with today. Property prices were much lower relative to incomes.

In 1985 Sydney’s median detached house price was around $73,000 according to Domain Group data, or three-and-a-half times average annual earnings. Now Domain puts the Sydney’s median house price at $914,056, about 11 times average earnings. But first time home borrowers in the 1980s faced far more uncertainly over interest rates.

Towards the end of that decade official rates soared to around 18 per cent and household interest payments as a proportion of income climbed to the highest level in the modern era. A deep recession followed.

The mid-1990s heralded a long period of low and steady inflation and a significant reduction in the level of interest rates. This structural shift has made it easier for first-time home borrowers to service big loans but has also underpinned a significant run up in house prices.

The deregulation of the financial system during the 1980s and 1990s made it easier for first-time buyers to get a home loan and has provided a vast array of borrowing options. But policy changes, especially changes to capital gains tax in the late 1990s, drew more investors into the property market. In the early-1990s only about one sixth of new home lending was going to investors but this year it has risen to more than half.

Sydney University housing expert, Dr Judy Yates, says Australian attitudes to housing have shifted in recent decades. Once it was viewed primarily as a place to live but now its considered a source of wealth accumulation.

“There’s been a change from treating housing as just shelter to treating it as an asset,” Dr Yates said.

The upshot is that first home buyers are now often in competition with investors for similar types of housing.

The preferences of Sydney’s first home buyers have also shifted.

“The starting point for most home buyers in the 1980s was a cheap house and land package on the city fringe,” said Domain Group economist Dr Andrew Wilson.

But that started to change about 20 years ago. The proportion of townhouses and apartments purchased by first home buyers jumped from 12 per cent to 20 per cent over the decade to 2001 and has continued to climb.

“More first home buyers are now looking to inner-city living,” said Dr Wilson.